Yen Hits 34-Year Low | Bloomberg Markets Today 04/26/2024

Yen Hits 34-Year Low | Bloomberg Markets Today 04/26/2024

Give warning from London.
This is Bloomberg Markets today I’m Anna
Edwards alongside Guy Johnson and crazy
upset with the cash.
Today just less than an hour away.
Here’s what you need to know.
The yen hits a fresh 34 year low,
breaching 156 after the BOJ holds rates
steady and tweaks his language on bond
buying.
We’ll bring you the latest reaction.
And governor, you ladies press
conference which starts later this hour.
Soft landing hopes dampened as the US
economy slows and price pressures move
higher.
Trade is pair rate cup bets as the focus
shifts to PC data due out today.
Plus, stocks in Asia follow Wall Street
higher after buoyant results from
Alphabet and from Microsoft.
We’ll bring you the latest earnings from
Europe with NatWest and Totalenergies
reporting.
In the meantime, more on the markets.
You’re seeing that green on the screen
continue into the European session, at
least early on.
Your stocks, 50 futures higher by 9/10
of 1%, pushing 100 higher by about the
same margin.
The two year yield, though, hit that 5%
level now at about 499.
We’re going to dive into the
implications of the data.
And of course, on that currency watch is
Asad 156 handle on dollar yen.
Marcus today starts right now.
Good morning.
Where are we?
Friday the 26th.
Friday the 26th.
We have finally made it.
Bunch of things happening right now.
We will come on to and do with more
detail in just a moment.
First of all, it looks like NatWest has
beaten with its numbers this morning.
We’ve also got news out from Anglo
American saying that the proposal that
we’ve had for BHP undervalues its future
prospects and talking of future
prospects.
Right on cue, copper hitting 10,000.
So that maybe reinforcing its argument
that maybe it should be worth a little
bit more money.
The story, though, this morning largely
centering around what is happening with
the macro picture.
We saw the US data yesterday.
We get more of that a little bit later
on.
That is going to inform us as to how the
Fed is likely to react to next week’s
meeting.
But the immediate story, guys, is the
DOJ that felt quite dovish.
Hmm.
Yeah, I mean, and certainly the
currency’s continued to drop, hasn’t it?
And a lot of we’ve been asking all this
week whether could we maybe get it any
kind of surprise.
We didn’t get a surprise, certainly not
in the shape of a rate hike.
And that had been only an outside sort
of tail risk.
But there have been some people asking
whether we get that.
I suppose with the economy expected to
have been in contraction at the start of
this year, we shouldn’t be overly
surprised about that, but yet that the
yen continues to drop as a result.
It continues to drop.
And I think we’re talking a lot about
monetary policy.
The fiscal policy of Japan matters as
well as lot.
There are subsidies at play.
There are kind of additional wage
negotiations at play as well.
So the concept of that perhaps another
hike may materialize, be addressed by
the end of the year is not an outside
possibility.
Two months ago we might have that it
was, yeah, an intervention of course the
key focus of the day.
But then that rubs up against us.
Data and timing of any of that will be
really interesting to watch.
Press conference kicks off in.
Where are we?
It’s 3 minutes into the show, so we’ve
got 27 minutes to go until the press
conference starts.
Is he going to be more hawkish, wider?
I think it’s going to be really
interesting.
It feels dovish at this point.
But as we’ve learned from Jay Powell,
things can change during press
conferences and maybe we can see pivots
that ultimately change the market’s
direction.
So we’ll see.
He could be hawkish.
He could be saving that narrative up.
I we’re watching very carefully what is
happening.
We are aware of the risks in terms of
the imported inflation narrative around
a weaker currency.
There are various tweaks and changes
that he can make.
Do we work this into the I mean, I
mentioned the US taxes piece.
Yeah, later.
And a lot of people, every time we get a
US state to print and we’re watching
intervention, there’s a lot of
conversation about, well, if they’re
going to intervene, when do they do they
do it after the date it and they do it.
You know what?
What do they tell me the guys.
And that takes us on to the US data of
yesterday, which for some people was the
worst of both worlds really the
stagflation conversation perhaps back as
in we’re talking about a week ago story
at the United States, which makes a
change because we certainly have not
been doing that over recent months.
The day the music died was the way that
Bill GROSS summed it up.
I have issues with the weakness.
I think there is.
You look at the top line number.
Yeah, you can see that it’s weakness.
I’ll tell you, there’s a bunch of
factors you need to consider here.
Import data is surging.
So you weirdly and I know this feels
kind of counterintuitive, but you back
that out of the GDP number.
So if you’ve got strong imports, i.e.
the economy’s doing well and you’ve got
strong imports because the economy
hasn’t got the potential to satisfy all
the demand, you back that up, GDP
inventories, you back out of GDP,
they’re coming down again, a signal of
strength.
Well, it’s not just guy who’s not too
worried about the weakness of the GDP.
Janet Yellen also not too worried about
this in good company.
Yeah, same team you are.
She called them peculiar elements and
you’ve described them guy that peculiar
elements and therefore she’s not worried
that that does sound like Guy Johnson
wording I sure did write that for her
guy I’m moonlighting as a speechwriter.
I wouldn’t be surprised.
I think what’s also important to keep in
mind is as we’re talking about this
consumer weakness and the import export
story is China is a key piece of this.
And I think this folds in so well and so
beautifully with the Japanese yen story,
even the copper story as well, because
as you’re seeing weakness in the United
States, how much of that is a China
deflationary story as well, that it’s
kind of starting to seep into some of
the data?
A couple of months ago, we start to see
economists warning about that
deflationary read through.
If you look at the export data, you’re
already seeing that in like the ports of
L.A., for example, you’re already seeing
that read through.
That could be adding to some of the
weakness.
The other piece of it is the currency
story.
This idea here that you’re starting to
see these dollar longs position that is
adding to the yen weakness that also
adds on again to competition in the APAC
region in terms of exports again to the
United States.
So there’s kind of this trade in the EM
world that pips the Japanese yen, the
yuan and the Korean one all against each
other, all in terms of how the US
consumer is doing.
You get a solid print later.
I so so yesterday I love the update
because it’s sort of confusing.
So you get core PC data that comes out
on GDP day because it’s part of the GDP
package.
And then you get the personal
consumption income data package which
comes out the following day, which is
also, funnily enough, called confusing
deflator.
But it’s today’s one that the Fed
releases.
It’s the today’s one that the Fed
watches.
So yesterday’s number definitely split
the market.
So yesterday’s inflation data was
strong.
Today’s the one you really want to
watch.
The market feels like, though, it is
increasingly set up for a higher print
and we’ve back yesterday quite a
significant repricing of the Fed so
we’ve now.
I get the Fed to December, which I think
is amazing.
So we’re not actually far from kind of
pricing 2025 now.
But if you get a weak print today, I
think the kind of the asymmetry around
the reaction today is going to be thing.
I think they’re kind of the higher
inflation number feels like it’s
increasingly priced.
If you get a weaker print, maybe that’s
not priced.
So maybe that’s where the volatility
comes in a little bit later on.
The bond story’s really interesting as
well.
I’m sure it was terrible.
The auction was really, really bad,
which is surprising.
And giving that earlier in the week, the
auction was actually pretty decent, kind
of buying out the yield.
But I think it kind of creates a line in
the sand of the 5% level that you’re
seeing on the two year yield.
That seems to be the line in the sand
for a lot investors.
We’ve been talking about that in terms
of the ripple effects of stock market
globally.
Let’s just get to some European
earnings.
So it’s just a you know, just to show we
care.
We’ve got numbers that we definitely
care.
We got numbers out of NatWest.
No, I only read it like that because
actually they’re maintaining their
guidance.
And the numbers, though, do look to be a
beat.
So pre-tax operating profit, better
impairment loss coming in lower than
expected.
What is really interesting, this whole
sector, we’ve had Lloyds, we had
Barclays yesterday.
Venkat It’s all about net interest
margin and the way they’re managing
that.
There’s a lot of talk in the sector
about structural hedges and the way that
these banks are able to delay the impact
of some of the negatives whilst bringing
forward the impact of the positive in
terms of rate changes.
What we and we talked about the
volatility in the Gilt story with Ben
yesterday, and that’s been something
that’s been really, of course on the
minds of these businesses but
government’s sake.
So we don’t have any more update there.
I guess that’s not in the hands of the
NatWest management, but you’ve got to
wonder the with the shareholding down to
less than 30% already, are we going to
get some kind of big sale?
They just keep drip feeding it into the
market this way.
Still feels like a fairly chunky
overhang in terms of stock.
The other thing I would flag as well in
NatWest is that the Q1 impairment loss
was 93 million.
The estimate there was 174.
So better, so much better if you see the
consumer confidence data out this
morning ticking a little higher in the
UK as well, maybe suggesting that
actually the UK economy maybe is
stabilizing, albeit at reasonably
elevated rates.
We’ve also got numbers at the total end
interest rates, not economic rates.
Right, right, right.
We got numbers that it’s total energies
adjusted net $5.11 billion.
That is just ahead of the estimate of 5
billion.
I was entirely distracted in my
preparation for this for this earnings
story today by a note out from Harvey, a
blast.
He’s been keeping us focused on listings
of big energy businesses in Europe and
whether they’re tempted to go to the
U.S.
And he says that he’s talked before
about total.
At this time, he’s talking about total
sorry, he’s talked before about Shell.
Now he’s talking about Total.
It’s been listed in Paris since 1929.
Could it go to the U.S.?
And he’s suggesting that both of those
could move it.
If you guys rant on oil, multiple it.
No, no, no, no.
I’m going.
It’s about yogurt.
Oh, yeah.
Naturally, they’ll be pushed back.
Oh, then be push back.
If Danone is strategic, what do you
think Total is?
Yeah, absolutely.
I mean, they gas as gas and energy have
proven to be very important strategic
assets.
It would be unlikely the French
government would be particularly taking
a taking a laissez faire attitude
towards the movements of large French
energy stocks to the United States.
They’re also planning a $2 billion
buyback.
And that’s exactly what I was going to
say.
That’s not the only company, by the way,
is another story out of Alphabet as
well.
But earnings in the tech story as well
out of the Olympics.
I mean, go to nitty gritty.
But the first ever did a dividend coming
out of Alphabet 20 $0.20 a share on top
of a $70 billion stock buyback, even if
the numbers were poor, even if they
didn’t have the market share in the
cloud boom there, that would still be a
stock to buy just for returns.
But they did, which is why you saw this
massive move in the stock.
Yeah, we dance the Magnificent Three
now, is it is it alphabet?
Are we losing them that quickly?
Well, it kind of if you think about what
happened last night, it was Microsoft
Alphabet it videos and it is not had a
great week.
Take a look at Nvidia this week it’s
it’s not had a fantastic week but you
kind of feel but down to alphabet
Microsoft and Nvidia it’s a scrappy week
we’re losing them fast we are losing
that fast.
But on the subject of Alphabet, you know
this has been a business where the
cloud, Google’s cloud product has lagged
behind some of its competitors, the
likes of Amazon and and Microsoft.
And then last night we did get that
evidence.
To your point about the numbers they did
deliver at the AI side, boosting the
cloud path of of that business.
And obviously I was a feature of the
Microsoft story as well.
Well, the the Google part is also
significant here because this is only
the second quarter that they’re actually
profitable in this particular unit.
And I think came out at 900 million.
The estimate on Wall Street was about
621 million for the quarter.
So they’ve shown this profitability.
But the issue with Alphabet is that they
have a lot of ground to make.
To your point, the dominant players here
in the air and in the cloud space, it’s
not Alphabet, it’s Microsoft is AWB and
by a massive margin, Alphabet actually
more directly competes with Oracle for
cloud share than it does with its
magnificent peers, if you will.
The fact that they are now profitable by
this much of a margin, by the way, an
almost 50% excess margin that they were
expecting helps them get to scale even
faster and even make up that share even
faster.
The numbers are eyewatering if you look
at how much this business.
Is our spending on it.
Unbelievable figures.
And and it’s just they are juggernauts
in terms of their spending right now.
One of the things, though, to really
keep an eye on and keep it very, very
carefully is that this is still the
early stages of the investment.
So when you do have this early ramp up,
the numbers are enormous.
Right.
And it seems that investors actually
have quite high tolerance for CapEx on
AI in a way that maybe they didn’t for
CapEx on other moonshot projects.
Yeah.
And I know moonshots, the Google term,
not the massive one, but you know, we
had a massive shareholder on just days
ago being very critical about previous
rounds of CapEx, but not this one.
Yeah.
And Microsoft had the same problem with
Asia.
Right.
And they have continue to say every
quarter.
People are saying, is this the time that
it snaps and it doesn’t because of the
massive growth rates we’re going to have
into that throughout the rest of the
show?
We have plenty more to say on that.
But there’s a couple of other things to
watch out in today’s session as well.
About 10 p.m.
U.K.
time, ECB’s Mario Santana will be
speaking at an event in Frankfurt.
We’ll be keeping an eye out for any
commentary coming out of him, as well as
the ECB 1:30 p.m.
London time.
Of course, that US data that we’re
keeping an eye on.
3 p.m.
you mesh consumer sentiment data guy I
think you said it is the final rate.
The final rate is not the preliminary
rate.
So we’ll see how tradable that is, but
still something put on your radar.
Plus, phase two of the Indian
parliamentary elections begins.
And of course, Antony Blinken is in
China.
So any commentary there is going to be
crucial.
Plus, of course, those big oil earnings
coming out later in the U.S., ExxonMobil
and Chevron.
Top of the docket.
Yeah, we can talk about multiples.
We can compare and contrast.
I keep waiting for you to do it.
You’re not delivering.
And I want to talk about yogurt.
It’s Friday.
I’ll talk about airplanes.
We can talk about airplanes.
We can I.
Airbus last night was in show I got to
talk to in for it which is always a
pleasure.
And and it’s interesting that I they are
if you want to see a supply constrained
business take a look at what is
happening with Airbus right now.
I most businesses have sorted out their
supply chain issues.
The aerospace industry is struggling
beyond belief to sort out its supply
chain.
This feels like a new normal now that it
doesn’t.
They can’t now say that this is a sort
of COVID.
No, no, no.
This is the problem.
Yes, this is a new normal in this.
So I think part so it’s taken them a
long time to come back because it takes
a long time to train somebody to build
an airplane.
You kind of want it to work.
Yeah.
Well, yeah, that right.
Yeah.
We’ve learned that lesson recently.
And so it takes a long time to bring
people back.
And the supply chain has had the same
problem and they went through there was
a long time in which the supply chain
was kind of squeezed.
So we need to take kind of costs out of
the supply chain.
That is now a real struggle.
And there used to be the idea that
Airbus would also recruit out of its
supply chain.
That’s a real struggle as well.
But they’re also trying to ramp
production.
So they’re also seeing huge demand at
the moment.
So you’ve got the supply chain squeeze
and you’re trying to ramp production at
the same time, which is.
Yeah.
And then that because you have to
prepare for just in case instead of just
in time, you’re trying to ramp up
production that weighs on cash flow ways
on your working capital.
And that’s what we saw at the US Embassy
is a huge they they call it an inventory
buffer.
They’re talking about a buffer because
they want to carry so much of this
stock.
Now, part of that is due to the ramp so
that ramping up production.
So they want to carry more inventory to
make sure that that ramp could deliver
up to the high 75 rates.
But but so is it a good news story
because demand is there or is it a bad
news story because the effort to get
there is so hard.
So it’s very exciting.
Morning.
We talk planes for tweaking supply
chains.
We are going to talk a lot of other
things as well.
So coming up on the program, a French
study by the former Bank of France,
Governor Christie and new calls for
urgent actions to deepen European
capital markets.
We will have an exclusive interview with
him at 8:30 a.m.
London time.
Could we finally be turning a page in
the Capital Markets union?
We’ll see.
Plus, we speak to Charity in honor of
Saxo Markets, who says yet intervention
without a hawkish BMJ will be futile.
That interview coming up at 7:30 a.m.
UK time.
We’ll bring you the press conference
around the BOJ, of course, as well.
If you have questions for our guest, if
you just want to get in touch with us,
if you want to talk to the team that
puts together the programme, Ivanka’s TV
Go is the function to use on the blog
back.
This is going back.
This is not a worrying report for the
Fed that is telling the Fed that those
interest rate increases may be having
some effect in slowing demand,
particularly for goods.
But it’s not alarming by any means.
I don’t see why the Fed would be rushing
to be cutting rates in an environment
where inflation is still sticky.
That was true three months ago.
It’s true today.
Terrelle Pryor Associates, chief U.S.
economist and the Stifel Financial CEO
there speaking on that resilient U.S.
economy.
With a little bit more analysis here,
Eric Nelson, macro strategist over at
Wells Fargo, joins us this morning on
set.
Good morning.
We’re seeing consumer resilience.
You just heard sound that the U.S.
economy is doing great.
There was a data dump yesterday and the
markets reacted as if it was the exact
opposite.
Was that warranted?
I don’t think so.
I think that the market’s been waiting
waiting for that sign that maybe the
U.S.
economy is starting to roll over.
And we just didn’t get it yesterday.
Right.
You look at the details of that U.S.
GDP report.
Yes, consumer spending was was
relatively resilient.
But look at residential investment.
Housing investment is up almost 15%
annualized.
Yeah.
So rate cuts, rate hikes, rather, have
certainly had some impact.
You look at the level of residential
investment is still low, but it’s
starting to recover from a very low base
that still feels like it speaks to just
a lot of excess stimulus.
It’s still working its way through the
system for for Americans to be able to
make that kind of investment.
Is that the right read?
That’s a that’s a big piece of it.
Yeah.
And also just look at regular income
growth, right?
So margins in the corporate sector have
still been pretty high.
They’ve come down, but they’re still
high and the labor market’s been strong.
Income growth still strong.
Yes, integration is supporting that, but
also that the margin corporate
environment is still relatively healthy.
So that’s keeping the consumer going and
that’s keeping the housing market going
and the U.S.
economy overall.
Okay, Eric, good morning.
So we don’t worry too much about any
weakness in that GDP number.
They were the reasons we talked about a
couple of times then as to why that
those don’t matter or might be
transitory.
Janet Yellen also not worried about the
pickup in the type of inflation print we
got yesterday.
Many inflation prints available.
We got a different PCE today.
But she said, I have no doubt that the
contribution coming from housing costs,
this is that component will be falling
over the coming year.
So any concerns around stagflation then?
We just shouldn’t have them?
Well, certainly not stagflation.
The bigger concern here is that the
economy is just too hot.
They have strong growth, strong
inflation.
Right.
That’s the challenge for the Fed here.
We’ll have to get a real sense of what
the Fed’s thinking next week.
So, you know, the Fed has tried so hard
to explain away some of these inflation
readings, the relatively strong growth
readings.
It’s increasingly difficult to do that.
And I think next week will we may start
to see a more perceptible tone shift
from the Fed on these inflation
readings.
So you think we might get a pivot on the
pivot?
So if the first one came in December,
this is a pivot on that?
Well, the challenge is they’re expected
to announce a slowdown in the pace of
quantitative tightening next week.
So if they just do that and sound dovish
on rates in the face of these inflation
readings, it’s becoming a little bit
difficult to make that kind of policy
announcement with the current inflation
backdrop.
So I think the hawks in the committee
may start to hold more sway.
When does the market start to perceive
dovish?
This is a policy mistake and react to
the long end by sending yields higher.
Like to say that’s already happening,
but how much more could that be?
Well, again, it depends on if they
continue to sort of say the same thing
over and over again, which is, you know,
we’re just going to push rate cuts
further out.
So too, two more months.
Three more months.
Just give us more time in the face of
these inflation readings that that
becomes at a certain point less and less
credible.
And I think you look at the dollar’s
reaction yesterday that was really
interesting.
Didn’t make any sense to me that strong
growth, strong inflation, the dollar
went down.
But you know, to not see further dollar
follow through yesterday is really
surprising.
Rates don’t slow the economy down, I
think is the lesson we’re learning.
Financial conditions are the biggest
kind of impact on on how the US economy
performs.
Financial conditions are super loose.
They remain super loose.
The pivot back in December probably had
an effect on that.
Does the Fed now need to start knocking
asset prices to get financial conditions
back under control and have some
transmission into the economy in the way
that rates are not doing right now?
Well, I do think that rates do have an
impact.
I think what’s different about this
cycle is what’s driving you look back in
2006, 2007 credit driven, it was
variable rate mortgages.
High rates had a very clear impact.
High rates do have an impact on
businesses.
They do have an impact on consumer
credit.
You know, credit card delinquencies,
there’s some impact.
It’s just being completely swamped by
the fiscal and the income growth.
And I think to your point, we need to
see is more time at relatively higher
rates, probably five, maybe five, even
higher than that along long.
And that’s the kind of thing that will
have an impact eventually.
But the Fed needs to change course for
that to happen.
Can we zero in on the income growth
piece piece of us?
Are you making the argument and correct
me if I’m wrong, push back, please, that
because there’s higher corporate margins
that’s actually bleeding into real
wages.
More to say that because margins.
So we’re in a classic labor hoarding
environment right now.
Right.
Hiring has come way down.
But if you look at jobless claims
yesterday, they’re extremely low.
So firms do not feel compelled to lay
off workers.
They got a burn in 2020 doing that.
And the margin environment is so strong
they don’t have to write even though you
are starting to see, you know, a little
bit of pressure there.
And I think that’s really keeping the
labor market strong.
So overall in.
Job growth is still strong.
Wage growth has slowed a little bit, but
in aggregate, given how strong job
growth is.
Labor income growth is still really
solid in aggregate.
Hunter said.
So then talk to us about the stimulus
piece.
The other part of the equation you
mentioned.
When does it run out?
When do we stop seeing the effects?
Well, you know, certainly the we have
started to see a lot of the tailwind
fade on the federal side.
But take a look at the state and local
contribution to U.S.
GDP in the last five, five or six
quarters or so.
That’s really strong.
Right.
And you look at the exact opposite of
20, 20, 29, 2010.
So you’re still getting a tailwind from
different places on the fiscal side.
And I think that’s really
underappreciated.
We’re getting very excited about tech
earnings and AI, and it’s been a bit of
a messy week trying to untangle, you
know, the winners and the losers and
matter hasn’t had a good week.
Others doing much better.
On the air front, we deal with it very
bottom up.
We’re talking micro from a macro
perspective.
Are you seeing impacts yet?
Is there anything to say about AI just
now?
I think it’s a little bit too early.
I think a lot of the AI boom has
certainly coincided with a productivity
pick up.
But if you dig into the data, you
haven’t necessarily seen that so much in
terms of what’s actually driving the
productivity, driving the investment.
A lot of it is, again, the fiscal right.
We’ve had a lot of Investment Chips Act,
the IRA, all these things that have
contributed to real genuine investment
in the U.S.
and that is a big driver of this
productivity bump.
What does it mean for the rest of the
world?
Like the BMJ today.
Struggling currency weakening
dramatically, other Asian currencies
weakening dramatically.
We’re kind of on tenterhooks waiting to
see what’s going to happen in Europe if
the US continues to power ahead and the
Fed doesn’t move until December, maybe
even 2025.
What breaks what is the kind of what’s
the economic ripple that you’re thinking
about, the waves that are going to
spread out into the rest of the economy?
And how is that imbalance going to grow
us versus the rest of the world?
Well, certainly a strong dollar has as a
negative impact on a lot of the world.
Right.
Think about emerging markets who are
borrowing and borrowing in U.S.
dollars.
You know, the whole world is is
effectively short dollars in a way.
Yep.
I think the from a growth perspective,
there’s already economies within the G10
that are starting to show some cracks.
Sweden, Canada, they’re more relying on
variable rate debt.
And I think if those economies are kind
of dragged into keeping rates higher for
longer because of the Fed, that becomes
more of a problem for their economies.
All right, great.
Thanks, Tom.
See us all this Friday.
Digesting all the data that we’ve got.
We get more of it a little bit later on.
We get the personal income data package
that’s going to be coming out.
We’ll be watching very carefully what is
happening with those numbers because the
Fed will be watching very carefully
what’s happening.
We will also be, I suspect, having the
Japanese watching very carefully, the
yen hitting a fresh 34 year low.
The BOJ hold a great steady tweaks to
its language on bond buying.
Also coming through cherry sonata head
of strategy at Saxo is going to be
joining us.
We are 3 minutes away from the BOJ
presser.
We’ll also bring you details of that.
This is live.
Welcome back.
This is Bloomberg Markets today.
You’re looking at live pictures coming
from Tokyo.
This is the governor of the Bank of
Japan, of course, governor, speaking at
that press conference.
The event that usually follows the
decisions around monetary policy as it
does today, no change in monetary
policy, at least no change in the
interest rate from the BOJ.
They tweak their bond language.
Of course, it wasn’t enough to put a
line in the sand on the dollar.
Yen.
We’re at 156.
We’re back down to 156 once again.
So weakness in the yen, weakness we
haven’t seen since 1990.
We’re watching that very closely.
That’s part of the conversation around
Japan.
We’re also focused on any intervention
that might come from the Japanese
authorities because this weakness in the
currency is not a new story and it does
put certain strains on an economy.
So we’ll monitor the press conference
coming to you is just kicking things off
then in Japan.
As that continues, we will get to our
next conversation.
Our next guest says that any
intervention by Japanese authorities
without the support of hawkish policy
messaging will be futile.
Joining us now is Travis Shannon, head
of strategy at Saxo Markets.
Very nice to have you with us.
So, I mean, this is a point that a lot
of people are making that the that the
weakness in the currency is being driven
by interest rate differentials and that
big and any language around watching
with vigilance the or any similar
language what’s going on in markets or
indeed any any any tweaks to monetary
policy not really changing the narrative
around those interest rate
differentials.
What’s your view?
Yeah.
I mean, actually looking at the
statement today, Ana, it was really a
surprise because there was some
expectations that were built up because
of the comments that had come through in
the last few days that the DOJ statement
would address the impact of effects on
inflation.
And also, there were, I would say, a
small part of the market that was
expecting that because of that likely
impact on inflation, the BOJ policy
stance language or its bond buying
strategy could shift in a little bit of
a hawkish manner.
But the statement has been so bland,
right?
I mean, it could obviously mean that
Europe wants to stress a lot on direct
communication.
You’ll see the size of this policy
statement as well.
The length of the statement has been
sort of short as well.
So it certainly looks like there are
some changes coming.
But if they’re going to take it that
slow and given that the U.S.
side of the story is dominating where
Ollie and goes, it certainly looks like
for them to reverse this trend and
dollar yen will remain very, very hard.
Hmm.
Sticking with the rates conversation we
see, Governor, he’s delivering these
these comments this morning.
He’s saying Japan’s economy is
recovering moderately and his weakness
in the Japanese economy, the big thing
that stands in the way of another rate
hike because we’ve had the end of the
negative interest rate policy in Japan,
but we haven’t seen a series of rate
hikes yet.
And maybe, you know, that’s what some
people are waiting for.
It’s very difficult for the Bank of
Japan to go on a series of rate hikes,
as you call it.
Right.
They have fiscal concerns to be cautious
of.
And if you just look at that Tokyo CPI
print that came out this morning as
well, it was considerably weaker than
expectations than the previous month as
well, although, of course, there was
some one off items in there that played
a part, but certainly doesn’t look like
we will continue to get those macro
conditions that could support another
rate hike as well.
So, I mean, you know, I think it really
remains difficult for Bank of Japan to
move at an accelerated pace, also
considering the kind of impact their
moves would have on global bond flows.
Right.
I think that is something that they have
to be really cautious of as well.
So if anything, again, I mean, going
back to the yen, the move really has to
come from the U.S.
side to bring a really sustainable
recovery in the Japanese yen.
Terry, you’re going to get Sky.
So what do you do if you’re the Ministry
of Finance in Japan and you’re watching
the yen ticking lower and lower, Lower
West.
Where’s the line In the sand?
Like you just said, we need to watch the
facts and its impacts on inflation.
This is going to add to inflation.
The imported inflation story is going to
be significant if we keep going at this
kind of a rate.
When when do you do something about it?
If you’re the Ministry of Finance, when
do you take action?
Is it after the US day today?
Do we wait a bit longer?
What is your thoughts on that?
It certainly seems like they want to
remove that mentality around lines in
the sand and really focus on the the
pace at which we are seeing this, the
acceleration in the Japanese yen.
So earlier it was the 152 level in
dollar and that was being large then 154
155 Now suddenly all these levels have
been cleared without even, I would say,
the narrative taking a leg higher at
this point.
So it does mean that we could, you know,
test the limits of the Japanese economy.
You know, if you go back to some of the
comments that we got from the ethics
chief in Japan earlier, he said that a
move of about ¥10 in a month against the
dollar, that would be the threshold for
intervention.
We’re not there yet.
The early April lows were about one
5151.
So we have to get ready 160 for that to
be a concern.
And if we don’t get to that, by the time
we get to next week, then again the
threshold goes higher.
So I think it really depends on the pace
of the move rather than the levels at
this point.
But but your theory would be that if we
don’t see more hawkish narratives
emerging from the authorities in Japan,
the DOJ, that if we do see intervention,
the right reaction would be to sell the
yen on the back of that after the
initial move has faded.
It’s an opportunity to work against the
yen rather than kind of retreat from
that position.
Right?
Absolutely.
That’s that’s exactly what I’m trying to
say, Guy, because as I said earlier, the
sustainable move lowering yen or the
sustainable strengthening of the yen can
only come from the US side where we
start to see some economic weakness in
the US, some more signalling on Fed rate
cuts.
And I think we are just getting further
and further away from that rather than
getting closer to that.
At this point, the BOJ can only cover a
very small distance in that yield
differential that we have from 0% to
five and a half percent in the Fed.
From the Fed.
They can cover a very small part of that
distance.
Right.
So any move from the Japanese
authorities in terms of an intervention,
they either have to be coordinated, you
know, with Korea, like we got a
statement with Janet Yellen that could
make the move a little bit more
sustainable or it has to come with that
turn in the Fed policy which which we
are not that it yet.
So I would think the markets would
continue to position to feed the move if
we were to see a strengthening of the
yen on the back of an intervention.
Tara It’s crazy.
In London, it feels like at the core of
this argument that intervention is going
to come is that once it’s happens, once
it sets a precedent for it happening
over and over and over again, is the DOJ
and by extension, the Ministry of
Finance, do they have enough cash
reserves to do that?
What is what does that look like?
I mean, you know, they could have the
cash reserves.
But again, like you said, you know, it
is going to be an endless amount that
they need.
And as long as the yen continues to be
driven by the U.S.
side, you know, you had this whole GDP
data coming out this week.
Now we are the focus has shifted to the
march e number due today going into next
next week.
We again have factors like the Fed
policy meeting or the quarterly funding
announcement from the Treasury side.
All of those continue to point towards
more upside in Treasury yields.
So even spending a penny here on
intervention seems futile to me.
And I don’t even want to look at what
reserves they have left to really make
an effort.
I think that’s a fair argument to make.
CHO As we speak to you, we are getting
more lines coming out of courts,
Governor, to really harping on the
story, saying could be a vital factor to
affect inflation, but that monetary
policy is not targeting control of
facts.
Of course, they will be monitoring those
impacts.
To talk to us a little bit about whether
or not the yen even functions as that
classic safe haven currency anymore
given the macro environment that we’re
in.
Do capital flows have any bearing on
what the yen does?
That’s a very interesting question,
Kristie.
And I would like to emphasize here that
when you’re trying to find a safe haven
for your portfolio, you need to
understand what kind of risks you are
hedging.
Right?
If it is the geopolitical risk that you
are hedging, then, you know, it really
comes down to the fact that whether
treasuries can continue to be a safe
haven, because the safe haven aspect of
the yen was being driven by the fact
that Japan has a large holdings of U.S.
treasuries and they are a safe haven.
But given the kind of fiscal environment
we are in, in the US, you know, the
great volatility that we’re seeing in
the U.S.
in the long end of it, it surprises me
that we can still consider the long end
Treasuries as a safe haven.
As a result, the Japanese yen cannot be
a safe haven unless the bid comes
through in a sustainable manner to the
treasuries as well.
Tara, great to see you.
Thanks very much indeed for jumping on
and giving us some instant analysis at
the start of the press conference,
which, as you can see, is ongoing.
Church and on head of strategy at Saxo
Markets.
Quick recap.
Zip line is coming out, which I think is
really worth paying attention to.
Effects could be a reason to mull policy
of effects.
The price trend, i.e.
you get imported inflation coming
through as a result of this weekend that
we are seeing.
Couple of things I want to mention.
First of all, if you want to listen to
what Euro is saying, you can do so on
your Bloomberg terminal live go is the
function that you can use to make that
happen.
The other thing is there is a fantastic
live blog that is currently running that
will give you all the insights and
analysis as to what is being said and
its implication for the market.
So all of that available on your
Bloomberg.
We’ll continue to monitor what is
happening with that press conference,
but we’re going to move on as well.
We’re going to talk about tech,
Microsoft and Alphabet reaping the
rewards of their spending spree.
The earnings were strong last night.
Are we down to the Magnificent Three?
We’re going to talk about that next.
This is Bloomberg.
Welcome back to markets today.
We are 17 minutes away from the start of
cash trading here in Europe.
There’s a lot going on in the Asia
session, though.
We’ve been through the BOJ story, no
change in rates and the yen continues to
slide.
That’s the headline really 156 is where
we trade.
Let’s talk about where we are on these
markets in 2 minutes with our markets
live, executive editor Mark Cudmore
who’s with us this morning.
Not any change to your thinking then in
the on the Japanese currency.
Any thoughts on timing of any
intervention?
We were just hearing from our guest
about the futility of the intervention.
If the US doesn’t do something that
changes the dynamic on interest rates.
Yeah.
Good morning on it.
No major change.
I am still structurally very bearish.
The end.
I still think that if the move coming in
intervene the discretionary macro hedge
fund community will excitedly use that
intervention as a chance to just sell
again at better levels.
I don’t expect intervention.
Obviously it’s a risk if dollar yen is
much higher by tonight.
I’m told by some of my colleagues, some
smart colleagues in Japan, one 5760
might be the level to watch.
I kind of think it’s got to be somewhere
near 160 probably before the IMF is
going to intervene.
When we’re in a world where US yields
are going to continue to drift higher.
Okay.
There’s so much to talk about this
morning, Mark.
Let’s go from what’s going on in
currency markets to what’s happening in
metals.
Copper hitting 0,000 a tonne in London
for the first time since 2020.
So which isn’t that long ago.
But interesting dynamics in this market
given the M&A excitements in the market
that we covered a lot yesterday.
I know your colleagues have been writing
about how the short term direction might
be a little opaque.
I think this was on the markets like
just yesterday, but maybe the medium
term dynamic can be a little more solid
in terms of the copper price.
And we all know that this is an
important metal for transition.
What do you make of this latest move
higher in copper?
Yeah.
Look, I think that the 0,000 just
symbolic as those lovely round numbers
gets great headlines, they all get
excited.
But it’s a little bit of an arbitrary
level.
The backdrop story here is that we’re
still seeing an incredible reflationary
dynamic in commodities, unlike while
some of the you know, some of the gains
have come out of oil markets, which is
kind of the benchmark one to watch.
And obviously the most important
commodity.
The fact is the Bloomberg Commodity spot
index is right up at the highs and it’s
just an incredible gains over the last
two weeks.
In fact, other commodities are gaining
so much that they’re making up for the
fact that oil prices have pulled back
from the highs.
And this is another dynamic that is
going to feed through to yields.
It’s going to feed through to yields in
a couple of months.
So when we start running out of kind of
the upward momentum from the Fed
readjustment, we’ll get another one from
commodity inflation.
Yeah, it’s all sounding a little higher
for longer, isn’t it?
Mark, thank you so much.
Big Bear Markets Live executive editor
Mark Cudmore joining us there.
Remember, you can get the Markets live
blog on the Bloomberg terminal.
MLive go is the functions usual here for
mark and all the other members of the
markets live team so that I can figure
out exactly what is happening on that
front.
A strong air demand has been cited as
the key driver of positive earnings we
got last night from Microsoft.
We also got them from from Alphabet, the
CFOs of both of the tech giant tech
giants.
It’s Friday.
It’s been long week, express optimism on
their earnings calls.
Used with our financial results for the
first quarter, driven in particular by
strength in search and cloud, as well as
the ongoing efforts to durably
re-engineer our cost base.
That’s why 25 that focus and execution
should again lead to double digit
revenue and operating income growth to
scale to meet the growing demand signal
for our cloud and AI products.
We expect our 25 capital expenditures to
be higher than in FY 24.
Are we down to the Magnificent Three?
Kind of felt like it after last night’s.
Alex Webb joins us to give us some
perspective on what we saw yesterday
from these two businesses.
They seem to be figuring out a way to at
least turn the spending into something
real, which I think is a critical
differentiator between some of the
companies that are spending huge amounts
of money.
I matter versus Microsoft feels like a
different story at the moment.
Are we beginning to kind of sort of
titrate out the differences between
these companies and beginning to figure
out who’s actually going to win in the
air race and who’s going to come second,
third, fourth and fifth?
I mean, certainly in this first wave
where it is very much an enterprise
products and of course, for Microsoft
and Google, they have platforms on which
to build that enterprise product through
which to sell it, namely the cloud.
Right matter does not have that matter
is consumer facing it.
Obviously its product is for the
enterprise.
It’s advertising, but it is just
advertising.
Google and Microsoft, they are selling a
lot of functionality to big companies to
use on their clouds.
We see with Microsoft about five
percentage points of the cloud revenue,
a little bit more than that, actually
seven percentage points to cloud revenue
in the most recent quarter was
attributable to AI.
So it is in that part of the business
that they have an edge.
When we’re talking about that edge,
though, there is a real competition
dynamic between Alphabet and Microsoft
in getting that cloud demand.
How much progress can Alphabet actually
make given Microsoft’s kind of dominance
in the space?
Well, that has been the question for
Google’s cloud for much of the past
decade or so.
Really, what we’re seeing now is they
are starting to penetrate and it’s AI
that is letting them do that.
When we think about the real leaders in
this space, it is really Openai and
Google.
And there are a bunch of other companies
coming up, not least anthropic, which
has a relationship with Amazon.
Amazon is the big sort of whatever for
300 £400 gorilla in the room.
Yeah but and Google was expect was
predicted to have 600 and something
million dollars of profit from the cloud
in the quarter.
It had $900 billion.
So it’s a huge beat.
Just from that business, it is really
starting to penetrate in a way that it
hadn’t been before I came along.
Now, creating new gorillas, perhaps not
so much the case for Masa.
I mean, that’s a business that’s had a
very difficult week.
Why is that business not managing to
turn this new technology into something
it can monetize?
Well, I think first is the reasons I
said, you know, that it isn’t it doesn’t
have the same enterprise facing
business.
But I think secondly, I think some of
the problems we’ve seen with matter have
partly been about communication, really,
that they are have been they’re
expanding their CapEx on particularly AI
type
things they need for revolution data
centers, personnel, that sort of thing.
But the stock has more than doubled over
the past 12 months.
We’ve not seen that same expansion at
Google, but the telegraphing at face
matter was very much we’re going to keep
our costs under control.
This is not going to be we’ve had a year
of efficiency.
Google, we didn’t really hear any of
that.
They did cut jobs.
They did actually introduce more of a
focus on costs.
But the communication was a little bit
more cautious than what we saw at
Facebook.
But this year they were just about to
see us.
Alex Webb How much of this stuff?
Is actually going to turn into a viable
business model.
I think it’s an open question.
Let’s talk about some of the other
stocks of watching here in Europe.
This one, we’ve had a whole range of
numbers out over the last 24 hours, kind
of started last night with Airbus.
We move into NatWest this morning.
Let’s put it all together with Joey
still.
Morning, guys.
Airbus has raised its output target for
the A350, Widebody long haul jet.
They now expect to produce around 12
jets a month from 2028 above the ten
jets a month previously.
And that is something that could
potentially help the stock outperform
continuously versus the old rival
Boeing.
That is something that we have seen and
a lot of analysts do have positive
ratings on this, around 20 buy ratings
versus just a single sell on that stock.
However, it did get more negative
further down in the statement and on the
analyst call as well, with the company
actually warning of continued supply
chain issues affecting their ramp up,
limiting their ability to produce more
jets, and also the geopolitical
situation also weighing on the earnings.
And as such, the event, the earnings
before interest and tax did actually
miss expectations.
And as a result, we saw a drop in the
idea of the US stock overnight.
So that one did fall 4%.
Potentially that outperformance versus
Boeing won’t continue in the short term,
at least that we’re looking at The big
story of the week, Anglo American, we
have got an official statement finally
officially rejecting the takeover
proposal from BHP and they are quite
strong in what they say.
So they say that the proposal is
opportunistic and fails to fully value
Anglo American prospects.
I also take issue with the structure of
the deal in this quote here, saying it’s
highly unattractive and creates
uncertainty and execution risk for Anglo
American shareholders.
Now we’ll take a look at what the stock
did following this approach.
We can see that huge jump and analysts
are noting that it actually trades above
where the implied takeover target price
would be
potentially showing that some analysts
and traders expect a higher bid to come
in for that one.
We’re going to take a look at BHP as
well over in Australia, because that one
did drop around 5%.
It had the biggest decline in seven
months overnight on the Sydney Exchange,
according to our data.
There it is on the screen, down 5.2% for
BHP.
Finally, here in the UK, we’ve got
NatWest pretty positive across the board
here.
The net interest margins are in line
with expectations.
Profits doing pretty well.
They stock has had a bumpy ride over the
past year.
Wave the CEO leaving following the
fallout with Nigel Farage and the Coutts
Bank account here.
Some of the main things on the screen
here, signs of improving consumer
confidence.
As I say, net interest margins stable.
The stock has rallied about 65% since an
October profit warning.
Those are potentially some of that
positivity priced in.
Keep an eye on NatWest over in London.
Joe, thanks very much.
Equities reporter Jay Lisa with the
latest on all of those names to watch at
the start of trade this Friday morning.
Let’s get back to the Japanese story.
Governor Wade is still speaking at the
BMJ.
I’m drawn to lines that put the story
front and center with regards to
monetary policy weekend, not having a
big impact on underlying prices.
Yes, he’s one of the lines he gave us
some minutes ago and then say the impact
of our moves on inflation is usually
temporary.
So, you know, if you’re looking for
reasons why they won’t be in a hurry to
intervene or desperate to intervene,
then you can see some.
But obviously other views are also
coming through in this press conference
this morning.
It’s interesting how he’s talking about
the facts.
He clearly doesn’t feel that the story
yet is at the point where it’s going to
have a material impact on inflation.
At what point does that become a problem
and how does policy react to it?
I think is a question that I think he’s
trying to still figure out.
The two lines that stuck out to me that
are still rolling out.
As he said, the impact of the maximum
inflation is temporary is exactly what
the market is saying.
It’s not temporary.
Exactly.
The oil price has not been mentioned
yet, which is significant.
It’s historically been a big weight on
that.
He also says that they’re not using bond
buying as a policy tool, which I think
is interesting because they invented
bond buying as a policy tool, because if
he doesn’t want to, does he?
You know, he wants to roll that back at
Nomura’s CFO saying they expect the yen
weakening to correct when the Fed cuts
rates, which goes back to the
conversation we were having with our
guest earlier on this hour saying that
this is actually in the hands of the US
rather than the Japanese.
Now, coming up, we’ll have the market
open for you.
We’ll get you the latest on European
trade.
It’s been a busy week.
This is going back.
Friday, the 26th.
Welcome back, folks.
Lots to talk about this morning.
We have, obviously the macro story that
is unfolding.
We have data out of the United States a
little bit later on.
Right now, we’re dealing with the Bank
of Japan, but we also are building our
way towards in a minutes and 40 seconds,
the European equity market open, which
feels relative to the last few days in
terms of the volume of corporates that
are having to plug in to these numbers,
like we’re a little holiday this morning
we got NatWest to deal with.
I think we’ve got a little bit of the
mining story to fold in, but but it
hasn’t felt quite as fast and frenetic.
It feels a little more casual, doesn’t
it?
But yes, NatWest could be interesting,
beating estimates, growing consumer
confidence.
Back to your point from the top of the
program that we are seeing that story
develop here in the UK.
But really it is a day where we’re
focused on the macro and we’ve been
focused on the DOJ.
That press conference at the BOJ ongoing
and a bit of movement in effects.
Yeah, we are seeing a little bit of pop
and yen as well, Remember has gone
through that 156 level.
We’re still kind of seeing what the
reaction is too.
But the latest headline coming out of
governor you to simply that they’re very
close to stable inflation if their
outlook materializes, which really to me
just seems like they’re saying if all
goes to plan, we will also execute as
we’ve been forecasting, which to me
seems like a little bit of nothing.
BURGER But it sounds that central bank I
was about to say, but it’s something
that the markets seem to be reacting to
of course.
Dollar yen one 5636 at the moment it’s a
couple of stocks are worth watching
totally I think is going to be
interesting.
Looks like that’s going to be hold high
this morning a monday.
The inflow number actually really strong
over Monday, which I think is worth
paying attention to as well.
AMS Osram, which has had a terrible run
recently and looks like the revenue line
is beaten back.
Could be a little bit of a see a little
bit of a pick up as well.
But I would think maybe some sort of
bottoming out in some of the European
chip story.
Will Yeah, In terms of the techniques,
we’ll certainly look for a bit of
whipsawing in that sector because
yesterday this on yesterday we were all
weighed down by doom and gloom around
Masa.
Today’s a different story from the likes
of Alphabet and from Microsoft.
So Nasdaq futures are higher.
Where will that leave the tech sector,
which was on the back foot yesterday,
down by just over 1% in Europe.
So European equity markets just opening
up.
Then the Footsie 100 is pretty flat.
But just out of the gates this morning,
waiting for others of the DAX is open
now up by 1/10 of a percent.
In terms of where we are, of course,
these European equity markets then
seems, yes, we are getting that bounce
back in technology.
So it was one of the sectors under
pressure yesterday.
That was the measure effects.
We now have a different story to tell.
We’ve got very short term memories.
It seems that we’re over, Max, over.
We’re now in the alphabet and and the
Microsoft numbers, the potential of AI
to deliver really front and center.
And so we see the technology sector, the
best performing here in Europe this
morning.
Airbus is down, unsurprisingly.
Actually, the idea is got hit a little
bit more last night.
So Airbus is only down by 6/10 of 1% at
the moment.
Worth mentioning, there’s a whole bunch
of goods in the market today.
So you got ABN Amro going next.
BSF is XD.
Munich Re L’Oreal L’Oreal at the moment
is the big loser in terms of the points
impact on the 600, but it’s gone
ex-dividend, so that’s worth mentioning
here.
We talked a little about this commodity
move here as well.
Some of the bigger index contributors at
least is Rio Tinto and Glencore as well.
Gun cautious look at their numbers,
about 12% of the revenue to that copper
exporters.
I wonder if there’s a macro read through
if some of the miners here this morning
that you’re seeing is starting to pare
back a little bit, but you didn’t
initially see that move.
I’m not getting an opening price on BHP
yet, though, so we will see what that
looks like after after the news that
their offer was basically rejected from
Anglo American.
Yeah, there’s a number of lines on the
on the basic resources sector aren’t
there.
There’s, there’s the nervousness perhaps
around who’s going to come in next with
what for Anglo and how messy will that
get.
How expensive might that asset become if
if it gets complicated and if there are
other players looking to get hold of it.
And there are all kinds of complexities
behind that.
We talked about that yesterday.
But then on the other side, there’s the
higher commodities price.
We were talking about that with mark up
more in the copper prices at the top of
the show jumps, you know, through
another big figure.
There’s a whole of of gold miners as
well.
I think Barrick is one of them that not
only produces a lot of gold, but now
produces a lot of copper as well.
So it’s going to be interesting to see
how this kind of this copper story
ripples out, not just out of your kind
of traditional, well known copper
miners, but into into the rest of the
space as well.
Airbus is now falling where it’s the
biggest points loss on the on the Stoxx
600 down by 1.4%.
But it’s interesting, some of the growth
stocks are coming back today quite
nicely.
Smells up.
Novo is up.
LVMH is having a good day.
SAP bouncing back as well.
Rémy Cointreau is another one rising
just shy of 7%.
Fourth quarter revenue beat when we talk
about the luxury space the consumer
demand there but it’s a premiumization
only
It’s the premiumization and luxury.
Two different things, apparently.
Yes, I’m American.
I don’t know the difference.
Electrolux also gaining.
So, you know, to your point, Christine,
we’re seeing some better response today
to some of the earnings stories.
Rémy Cointreau Electrolux stands out as
well.
That’s actually an earnings story, but
also a change of leadership story.
So we’ll continue to watch those those
businesses as that those stories
continue to develop.
Let’s just recap what we’ve been getting
from the DOJ.
Declining to comment on short term moves
is the latest headline that I see that
he has commented on based on the
relationship between.
The weakness in the yen and inflation.
That has been something he’s talked
about.
You wait to said earlier on that the
impact on effect moves on inflation is
usually temporary.
Let’s get into a conversation about
this.
He’s still speaking in Japan, as you can
see there.
Downing, chief investment officer for
Bloomberg fixed Income, joins us plenty
to say about the Bank of Japan.
Mark, very nice to have you with us.
Let’s start there, shall we?
The link between the weakness in the
currency and inflation in Japan, of
course, it pushes up the price of
importing things like oil and a whole
load of other stuff.
It benefits, of course, some of the
export businesses.
Governor, you wait to say the impact of
moves on inflation is usually temporary.
What are your thoughts on that front?
What I think we are seeing in Japan is,
is the inflation expectations are on the
rise.
I think for many years what we’ve seen
in Japan across society has been a
pretty depressed mindset, expecting
prices to stagnate and to drop.
But what we’re really witnessing in
Japan is the fact that we’ve now had a
couple of years or more of inflation
above 2%.
And I think the idea of inflation is
becoming more normalized.
So I think the governor is wrong here.
I think that if we do see a further
overshoot in inflation, this is bleeding
back into inflation expectations.
Remember, we’ve just had a wage round
where wages have needed to go up more
than 5%.
The labour market is very tight.
That will be feeding back into wages as
well.
So we really do see this engine between
sort of wages and prices really
connecting here and we CapEx is really
feeding into this.
So I think the bank has been
consistently vocal on underestimating
inflation.
It’s going to be continued to be sort of
more low on on on its inflation
forecasts because inflation is going to
keep surprising them to the upside.
And I think the effect is an important
engine of that.
Okay.
And just to recap where we are on the
facts, 156 is where we trade on dollar
against the yen continues to weaken.
Mark, if you think that that yen
weakness is going to snap at some point,
are you pushing out further into the
future the time when that happens, given
the strength of the US economy?
As you know, to some extent,
exceptionalism and the persistence,
therefore, of those interest rate
differentials, does that that point at
which the yen snaps snaps higher, I
mean, does does that get pushed out?
I think it certainly does.
I think that in effect, terms, what
you’re looking at is the the ratio of
carry relative to volatility.
And at the moment, the carry advantage
is is way too generous.
And so in a way, investors incented to
carry on selling the yen if that sort of
policy gap is not closing.
So obviously with the sort of US rate
expectations moving since the start of
the year, that has really exposed Japan
left it in a difficult position.
In a sense it feels like.
So the Japan has been out there almost
playing for the US recession, preparing
for US rates to come down, but they’re
not.
And what we really need to see is the
the BOJ really adjust to that reality.
But at the moment it feels like the BOJ
a slow two to come come to that game.
And in our sense, we do believe that
they’re now behind the curve and they’ll
probably look back at this as
potentially a bit of a policy error.
But I think that that will become
clearer as inflation sort of lose sight.
Mark, you say that the Fed doesn’t look
like it’s in the business of cutting
rates.
I would now price of December.
Does this embassy reasonable?
We’re going to see any rate cuts this
year.
Yeah.
So on on the Fed, I think it’s certainly
a very open question.
The economy remains strong, but
intrinsically I would say that having
been in DC recently, there is a clear
sense that I think that Powell would
like to cut rates if he’s got any chance
to do so whatsoever.
In a way, I’m sure he would like the
moniker of being the central bank of the
achieve the soft landing and secure his
place in the Hall of Fame, so to speak.
So I think that any data excuse to cut
rates and also to help Biden into the
election, I think he will look to take
it.
So I wouldn’t rule out the idea that we
have a rate cut in the second half of
the year.
All of that said, it does require a
better inflation data.
But just on that particular point, one
of the things that we had been
highlighting a few months ago, we
thought that the seasonals on inflation
data in the US were quite problematic in
Q1.
They do look a little bit better to us
in Q2.
So not the core PC data today that we’ll
see, but maybe in that in a month’s
time, in two months time, the data could
look a little bit more friendly.
So I wouldn’t be closing the door on
that possibility just yet.
But if the data remain as they are, the
moments are in a position where the
market will regard any early rate cut
from the Fed as a policy mistake, i.e.
the danger is that inflation becomes
more embedded and you see a bigger move
at the long end.
Yeah, I think in many respects it’s you
do need the data to change to justify
it.
As I said, I think the Powell would like
to, but he kind of needs the data to
cooperate and it’s not at the moment.
The truth of the matter is the US
economy is is moving ahead very nicely.
I know that we had a weak GDP print
yesterday, but that was a bit of a
statistical quirk that I’m very
confident will end up being revised the
way many other economic indicators
continue to look very robust in the US.
And I think the in terms of the the
trajectory here, the baseline really is
for rates kind of going nowhere.
I do think the path to a rate hike,
though, remains very high.
I think there’ll be a real reluctance to
raise rates again ahead of the election.
I think inflation would need to get a
lot worse for that to be on the table.
So I think broadly speaking, it’s
staying as we are higher for longer.
Um, but certainly what we seem to be
seeing at the minute is the economy’s
coping.
Are you okay with rates at this sort of
level?
Mark, how are you viewing Japanese
assets, though?
Is the short JGB trade still at play in
terms of being a hedge?
Is the Japanese yen still offering that
kind of value as a part of the carry
trade?
Do you even want exposure to Japanese
assets right now given the real lack of
action from the BOJ?
Well, yes, actually, you really do want
exposure to Japanese assets on the fixed
income side.
You want that exposure to be on the
short side,
being convinced that inflation’s going
to be moving higher, being convinced
that the BOJ is behind the curve.
I think being short JGBs continues to be
a very compelling way to run.
I continue to look at that through the
lens of something that looks very
asymmetric.
The likelihood of yields rising is is
far greater than the likelihood of
yields going down at this particular
point.
And actually, the cost to carry on being
short JGBs is it is very little.
So this is a position you can sit on and
you should be sitting on having strong
conviction that eventually yields go
higher.
But by contrast,
you should be looking at Japanese
equities and be saying, this looks
great.
I mean, Japan is reflecting things are
changing.
In Japan, there’s a very bullish
reflationary story to be made for
Japanese stocks.
I can pick your novel All the Nikolai,
but is certainly a big one to the
topside.
And certainly I would have thought that
this is a stock market that will
continue to outperform peers.
And I also think that is interesting.
When I’m in Tokyo, as I was recently
meeting a lot of Japanese colleagues, a
lot of them have lived in this lost
generation.
The first time almost gave up hope about
the future, but there’s a real
brightening of sentiment.
All of my colleagues that I know are now
looking to buy Japanese stocks, buy
property.
They’re trying to convince me to buy
condo in Tokyo as well.
I’m not sure where I’ll be doing that,
but I certainly am bullish on the on the
stock side.
But when it comes to the folks, leave
that alone for the time being.
There will be a moment when you want to
buy the yen as a currency because it’s
really cheap.
But but now is not that moment.
Well, I can’t ask you about Tokyo real
estate.
Admittedly, Mark, I haven’t looked into
it myself.
But I do want to ask you about the oil
price here.
When we’re talking about that important
inflation coming into Japan, how much of
the oil story is a leading indicator?
So liquor oil prices are being governed
by different dynamics.
And and so I think that the fact that we
have the elevated geopolitical risks and
situation in the Middle East is going to
keep
certainly a floor under oil prices, if
not sort of pose an upside risk there.
So so I mean, the dynamic on oil is the
dynamic in oil.
The fact that oil is a dollar priced
commodity means that in Japan, which is
very dependent on energy imports in
terms of oil.
When you translate that into yen, it
means that energy inflation is going to
continue to be a theme in
Japan this year.
Thanks so much, Mark.
Thanks for joining us.
Have a good weekend.
When we get there, Moms housing chief
investment officer for Bay Fixed Income.
We appreciate your time.
Some interesting lines coming out of us.
Secretary of State Antony Blinken is
visit to China.
He is going to be meeting with the
Chinese president, Xi Jinping in
Beijing.
This conversation, we knew he was there.
Of course, he was there yesterday and we
knew he was staying on for conversations
with top diplomats over in China.
But this new information that he’s going
to be meeting, Xi Jinping, this as
relationships described by China is
stabilizing.
But clearly, a lot of negatives in those
relationships as well and a lot to talk
about.
So we’ll continue to monitor and get an
update on that later in the program.
We will all watching that very
carefully.
Also watching what is happening.
The stock story this morning.
Let’s take a quick look at what is
happening with the cool six, the stocks
that we pay attention to across Europe
to just give us a steer on what the
bigger picture looks like.
And as you can see, we are a bit across
the board this morning.
Nestlé bouncing back after yesterday’s
disappointments.
We’ve seen Schneider up as small as is,
is driving the markets certainly this
morning, talking of driving Ferraris up,
they’re all up.
Are there any other stocks that we need
to be worrying about?
There certainly are.
Joe.
Eastern is watching those.
So one area that isn’t catching a bit
today is the aero and auto space sector
led lower by Airbus.
We did get those better than expected
order numbers and production numbers
from the company yesterday.
But the issue is the supply chains,
they’re not able to ramp up as quickly
as expected.
And as a result, the earnings estimates
are lower than expected.
That one down 2%.
Bear in mind, it is up massively when
you compare versus Boeing, the big rival
year to date.
I think Boeing nursing a loss of double
digit percent, whereas Airbus going the
other way.
Safran, meanwhile, the engine maker, had
some strong numbers out of them as well,
but declining 0.9% over in France
potentially.
But have a read across coming in that
they are actually a supplier to Airbus
themselves.
The low this is in car parts had some
weak margins out of them over in France
today.
That stock coming down 2% for
Continental to see if there was any read
across.
But at the moment, that one just ticking
higher was a little bit lower.
As I say, that sector looking pretty
weak today.
Then in terms of some other earnings, we
had NatWest at seven and that one did
break up 4% this morning.
It has had a big rally since October.
This as the outlook for the UK economy
and rates does improve at a slump last
year as the CEO unexpectedly left and
those next interest margins today are
looking pretty firm for them.
One stock saying a big drop though, over
in Amsterdam, EMC, This is in chemicals,
it’s agricultural chemicals.
It thinks weakness out of them this
morning.
That one is weighing on the chemical
space Totalenergies the big total oil
firm.
Oil price is pretty strong at the
moment, of course.
So that means that earnings do look
pretty strong.
They’re actually doing a $2 billion
buyback I saw breaking on the headlines
there and that stock just taking higher,
but it has had a good run with the other
energy stocks.
Rémy Cointreau.
Finally some decent numbers from the
drinks space.
We’ve had a swathe of profit warnings
out of drinks over the past year or so
but Remy finally seeing some better
sales.
Some of that in the US does seem to be
stabilizing for the maker of Cointreau
so that one gaining 4%.
Here’s the deal spot Anglo American down
0.7%.
We had an 11% gain for the stock
yesterday following that unsolicited bid
proposal from BHP, which I have firmly
rejected today, saying it does
undervalue their company.
BHP secondary listing is declining once
again in London.
The Australian shares fell around 5%
overnight, the biggest drop in seven
months for that stock phase.
And proof Daniel Kozinski, the Czech
billionaire, is going to be buying a
stake in their steel business, according
to a report overnight.
He’s the billionaire that’s looking to
buy the Royal Mail.
Royal Mail owner excuse me, I.D.s in
London.
So he’s doing a lot of deals at the
moment.
Got some spare cash.
He’s splashing it and he’s buying estate
and things in great style.
That one’s up 9% today.
Quick look at CVC, the long awaited
listing of the private equity giant over
in Amsterdam.
We haven’t got a normal ticker price on
that, but we can see that 23% gain.
It did list at 14 years of pace.
Here’s the price 1725 at the moment.
So investors getting a decent return on
the first day of trading for CVC.
As I say, the private equity firm
listing.
Finally we have got a rights exchange
carrying debt gets a downgrade.
Probably not too surprising given we did
see those weak earnings.
Cowin is the one doing the damage.
Takes it down to hope and in fact, the
stock gaining 2% still down for the week
given those weaker legs earlier in the
week.
Keep an eye on Carrie in Paris.
Thank you so much, Joe.
The news coming actually faster this
morning.
Now to reason from our equities teams
having a busy morning.
There’s that CBC listing story which I’m
glad that we got to talk about.
I also want to talk to you about
Darktrace, the tech business listed here
in the UK, getting an offer from Tomei
Bravo.
And this seems to be agreed by both
parties, so don’t.
Agreeing to this.
Pleased to announce they’ve reached
agreement on the terms of a recommended
all cash acquisition.
The price on this 7.75, if you put that
into pounds, the equivalent value of the
acquisition is 600 $0.20 per share.
It was certainly suspended for a moment.
That one, we’ll see where that one
heads.
We’re listing stocks fairly for sort of
foster ferociously here in the UK at the
moment, it seems to be the case.
We will talk more about capital markets
activity.
A busy day for that coming up.
NatWest beat earnings estimates in the
first quarter.
We’ll be discussing all of those results
and the wider banking sector next.
This is playback.
21 minutes into the session.
NatWest shares traded higher this
morning.
This after the bank posted a better than
expected first quarter results.
Lending and deposits actually increased
amid signs of improving consumer
confidence.
You’ve seen that also in the consumer
confidence data that we’ve seen out of
the UK this morning.
Sam Onstad joins us now from the Markets
Today blog.
In some ways, you want these numbers to
be boring.
You want these numbers to actually
deliver nothing.
And Lloyds was very much the same,
actually, I felt earlier on in the week.
But on the other hand, I can’t quite
work out whether you want them to be
exciting because in theory we’re about
to sell a whole chunk of this stuff to
the public.
Yeah, of specifically from NatWest point
of view, I agree.
You sort of need a little bit more maybe
to get excitement going in NatWest.
I think their results today, you know,
they were coming in with, I would say,
slightly lower expectations than you had
for for Barclays and for Lloyds because
their net interest margins have been
under a bit more pressure.
And actually for all those banks, really
the expectations have been relatively
low because activity in the mortgage
market’s been a bit lower, higher
redemptions, more people paying back
their mortgages.
And then also that move over to savings
accounts has sort of weighed on margins
a bit.
So this quarter, next quarter, probably
not going to provide too much
excitement, but then it’s later in the
year when hopefully that will turn out.
But yeah, there’s a lot of volatility in
our expectations around when we get cuts
from the Bank of England.
And that’s playing havoc, no doubt with
the expectations that these banks have
for their own net interest margin.
I mean, we had that conversation with
Ben Quant yesterday over at Barclays
where he’s saying, you know, we were on
a 90 basis point round trip.
We saw the yield at those yield
expectations coming down, then back off
again.
It’s there’s a lot of volatility in
here.
There is this an interesting comparison
with Barclays?
So Barclays is a smaller mortgage
lender, still a major one in the UK, but
smaller than NatWest is much more than
Lloyds.
And those extra volumes mean that you do
get a little bit more weakness.
And actually Barclays, the UK part of
the business, did extremely well
yesterday.
So things like they’re doing better on
being a bit more selective about their
lending within this environment where
margins are a bit more under pressure,
volumes are a bit more under pressure.
And overall it’s just they’re kind of
waiting, as you kind of allude to, for
those rate cuts to come potentially in
the second half of the year.
Okay, Thanks so much, Simon.
So from our markets today, we’ll get
covering all things UK for you on that
blog.
You can find that blog by going to the
UK website or you can type to go on to
the Bloomberg terminal.
So NatWest, a feature of that
conversation.
We need to talk about tech technology as
well.
We certainly do.
Strong demand has been cited as a key
driver for positive earnings of
Microsoft and Alphabet.
The CFOs of both tech giants expressing
optimism in their earnings calls.
We are very pleased with our financial
results for the first quarter, driven in
particular by strength in search and
cloud, as well as the ongoing efforts to
durably re-engineer our cost base.
And in FY 25, that focus on execution
should again lead to double digit
revenue and operating income growth to
scale to meet the growing demand signal
for our cloud and AI products.
We expect 25 capital expenditures to be
higher than in FY 24.
For more, let’s get to Bloomberg’s Alex
Webb, who joins us with the latest on
tech.
And we’ll throw into the mix darktrace
as well, which is another interesting
story this morning.
Firstly, on the big US tech names, then
Microsoft and Google.
How real is the revolution looking after
these results?
I mean, at this stage it’s starting to
look pretty real, like a decent chunk
and a growing chunk of the growth.
Microsoft Azure in its cloud business is
now coming from AI.
That’s, you know, a consequence of the
massive investments they put into
datacenters that money’s obviously been
going through and vidya a lot of it on a
Google.
The cloud business, which had really
been the laggard behind was Amazon Web
Services, that is, and Microsoft Azure,
it is now really starting to make
meaningful money for Google.
The expectation of for $600 million or
so of profit from the cloud business in
the most recent quarter.
In the end it was actually $900 million,
a fairly decent beat as far as the
enterprise is concerned.
There seems to be some really adoption
Happy went to Darktrace list 2021 not
very long ago.
It’s not being taken out by Tomer Bravo,
is it?
Is it because it’s a great business or
because it’s very cheap?
I’m trying to work out what the answer
is.
Well, actually, it’s still quite a long
way up on its IPO price.
But the thing that I find quite
interesting, it listed in the UK, there
is a very simple path that if you’re a
private equity firm, then you maybe take
that listing in four years time to the
U.S.
There was a slight overhang, of course,
for Darktrace that made it harder to
listen to us because one of its big
shareholders might Lynch write who is a
certain amount of legal difficulty in
the US.
Yeah, there was some suspicion that
maybe he didn’t want his shareholding to
be subject to U.S.
seizures, perhaps if it was listed
there.
So by taking it private here, Tim rather
considered it for a few years.
They don’t spend actually a huge amount
on R&D when compared to some of their
peers.
Cloudflare has a far higher spend and
R&D spend.
Some people therefore suspect that’s why
its tech might be a little bit better.
They could do that for a few years, take
it public in the U.S.
and benefit from the higher multiples of
which U.S.
stocks tend to trade a juicy one.
Alex Ward, we thank you so much for
walking us through some of the big tech
names.
Plus, of course, the IPO story.
We continue the IPO story coming up, a
French study by former Bank of France
Governor Christian Noyer calling for
urgent action to deepen European capital
markets.
That exclusive interview next.
We’re going to ask him what he
recommends, how they fix the problem,
maybe even his reaction to the fact that
one of the biggest private capital deals
this morning are happening in Amsterdam
and not Paris.
All that coming up next.
This is Bloomberg.
Protests in France last year over
pension reform, a political blow for
President Macron.
Still rose.
Savings from it were not enough to keep
the fiscal deficit under control.
The gap jumped to 5.5% of GDP, far
higher than the official target, with
slower growth, meaning lower tax
receipts.
The finance minister will have to find
at least €20 billion in spending cuts in
the next budget.
Hello, Mark.
So now what direction should we take?
Restore our public finances.
Go back to a deficit below 3% in 2027.
This is the commitment I’m making, a
commitment that’s unlikely to be met,
according to Moody’s.
A year ago, Fitch downgraded France one
notch, citing the high level of public
debt, which has jumped from around 65%
of GDP 20 years ago to over 110% today.
Should the rating agencies decide to
downgrade France?
Of course, that would be something that
would not be welcome and that would
prompt certainly the government to try
to act on it and to design an
expenditure reduction plan or maybe a
new tax increase, which is really
orthogonal to what the government has
been saying so far.
The pile of debt risks undermining
Merkel’s economic credibility and could
fuel support for the far right party of
Marine Le Pen.
Her national rally movement is leading
Merkel’s party in the polls by more than
ten points as the June European election
approaches.
Boomer’s Caroline Connan reporting there
from Paris on France’s debt rating and
the political pressure that President
Emmanuel Macron is facing as the issues
that Caroline outlined all come amid a
push to deepen European capital markets
and meet the massive financing needs
over the coming years across the
continent, all to close a widening
economic gap with the United States.
Now, how do you do this?
Well, in a report released Thursday,
former Bank of France Governor Christian
Noyer identified four areas for action
on how to accomplish that.
They include developing a bigger
investor base, creating a single EU
platform, granting ESMA that fiscal
authority over in the EU more oversight.
Despite being based in Paris and
reducing fragmentation across the
continent.
Some lofty goals.
We’ll see how they’re executed.
Joining us now for an exclusive
interview is Christian Noyer, himself,
the former Bank of France governor and
former ECB Governing Council member.
We thank you so much for making the time
for us this morning.
Christian, let’s start with one of your
recommendations here, a number that
caught my eye.
€1 trillion of funding needed by 2030.
How realistic is it that we get there?
Well, basically.
Well, thank you very much for receiving
me.
And good morning to all.
We believe that
we can do it.
We can do it in the European Union
because we have a very high rate of
savings.
And simply, this money is not
well enough targeted.
That goes too much into
investments abroad and not enough into
equities.
So if the investor base is better
reorganized with simple principles,
more towards retirement and pension
systems and, you know, new products or
more often transformation of existing
products to make them more efficient, we
believe we can we can move probably
something like 200 billion a year
towards the real needs of the of the
economy.
And also we can develop new instruments,
especially securitisation,
to
accelerate the rotation in banks balance
sheet and permit banks to to lend more
to where it’s needed for the transition,
the green transition, the digital
transition that is more into
the needs of co-operates
equipments and and the infrastructures
for energy, for instance.
Christian, a lot of what you’re
outlining also is similar.
I don’t think what you’re outlining
sounds very similar to the way that the
United States functions, these pension
systems, this regulation around savings,
the lending story.
A lot of that, however, is regulated and
dictated to some extent by the S.E.C..
I’m curious if we need a European SEC.
Does ESMA serve that purpose?
Well, we believe the role of hazmat can
really increase.
We have done that in the in the banking
sector for the the monetary union, for
the banking union.
We have what we call the single
supervisory mechanism that is working
under the umbrella of the ECB.
And we believe that the ESMA could
really enhance its role is probably not
saying that all the national supervisors
will well disappear.
They have not disappeared in the
supervision of the banking sector.
But ESMA should really be the the the
the driver, the head of the of the this
single supervisory system.
And what we propose is to start with the
big
market infrastructures,
the cross-border and systemic market
infrastructures.
What really doesn’t make sense to have a
number of of national regulators.
And we also believe that it could
develop its role progressively for the
major asset managers.
It would really make sense because the
fragmentation of the supervision today
means a lot of costs and inefficiencies.
Yeah.
Christine, good morning.
Do we also need a mindset shift for
European businesses that have relied for
a long time on bank funding rather than
using capital markets?
Is that at the heart of the problem?
And that seems to be something that’s
been discussed for more than a decade.
Well, it’s
it’s true.
It’s true globally, although there are
differences
between countries.
For instance, in France, the share of
market financing is probably close or
equivalent to that of the UK.
So it’s just not at all the American
system, but it’s probably
something like the double of what exists
in other countries.
Now we’re not alone.
It’s true also in the and the
Netherlands, for instance, so that they
are already a premises of
the start of a possible move.
But we we believe we can develop that.
It doesn’t mean that the role of banks
will disappear.
They can arrange structure, securitize
part of the loans they do, and then move
that to the market.
But yes, it’s true in a way, yeah,
we should move towards the model.
You described the American model, or at
least
be on the way to to change.
Yes.
Okay.
So some kind of mindset shift.
I mean, you’re talking about more union
here, Christine, And this is being, as
we say, discussed for many, many years
how you forge more capital markets
union.
How do you set that in the context of
European politics, where we see the rise
of populist leaders in some places, not
everywhere, but certainly in some
places, and the idea of more integration
could prove controversial.
Well,
I believe that first we we want to to be
very concrete for the ordinary people.
I mean, the savers, they are interested
in what they get, the return they get on
their savings.
What we propose would be products that
would enhance the return that they
receive.
And that can be a very, very telling for
for the for the people in general.
Second, we think that
we have no choice anyway if we want to
finance and to find the money to finance
the big investment costs for the
transitions, we need to really move
ahead.
This is well understood across all
countries.
I think there is a political dynamics in
the sense that we had a few days ago,
the report from Enrico Letta,
who is well known and to who produce
conclusions shorter than than ours, but
that go in the same direction.
And I don’t I don’t think that this is a
subject that really the populist parties
will will want to discuss too much.
They are not so much interested by that.
Kristen, good morning.
It’s guy.
You know, a thing or two about monetary
policy.
So let me just get your take on what is
happening.
The Federal Reserve increasingly looks
like it may not cut interest rates this
year.
How far do you think the ECB can stray
and cuts from the Fed?
If if the Fed is basically on hold?
Well, I think I mean,
the ECB, as is is in charge of a large
enough
monetary union to be to be really
independent, so to say on what they
decide.
I mean, what they have to do is to look
after the reality of the European
economy and target price stability for
the European economy, for the Eurozone
economy.
The the things may be different and they
seem to be different because the the
growth in the US is more resilient.
These there’s been in the in the EU or
in the eurozone is stronger.
The level of unemployment is lower.
And and it’s clear that the need seen
from the Fed for from the FOMC may be
different at a certain point of time.
So I have no idea or I shouldn’t talk
about whether the ECB will do
the the the they have to decide that.
But it it’s not realistic to believe
that they move at different times even
if the general the general movement will
probably be going in the same direction.
But there can be a gap of some months or
quarters depending on the circumstances
of each economic and monetary resultant.
Okay.
That was interesting.
Christine, great to catch up with you.
I it’s interesting what you’re saying
about what is happening with Capital
Markets union and the advantages that
Europe could face if it were to move
forward with that.
I just wonder if the crisis is
sufficient at the moment to make that
happen, because, you know, the former
Bank of France governor, former ECB
Governing Council member and author of
this report into the Capital Markets
Union here in Europe, one example maybe
this morning of things happening in the
the capital markets here in Europe, CVC
is listing finally €2 billion.
I think this is so fascinating.
This is a private equity firm
essentially that is going public at an
IPO at a time when IPOs themselves are
not getting that much traction to begin
with, let alone in Europe.
So now to see them not only listen
Amsterdam, but do it with a €3 kind of
increase on their on their stock price,
I think is pretty substantial.
I think they were initially poised for
about €14 per share, now trading much,
much higher than that by 21% on the day.
Yeah, this ties into early signs of
recovery in capital markets activity.
We’ve seen M&A from Darktrace just this
morning.
Anglo American yesterday we spoke to see
has been kind of crazy down from
Barclay’s.
Yesterday he was saying we are seeing
the early signs of that uptick in
capital markets activity.
He wants to see another quarter or two,
but he sounded hopeful.
I would maybe differentiate between
what’s happening with Darktrace being
taken out, which feels like it’s
actually the exact opposite of what you
maybe want to see here in Europe.
I darktrace is being I was meaning more
money for bankers.
That’s
fair enough.
Yeah, they will certainly be happy with
that.
But but I find that the duck tracing is
fascinating.
It’s basically it’s a confirmation of
the multiple problem.
We will take this private and then we
will to to Alex this point, this that
over in the states and we will get a
high multiple on this cybersecurity
company.
Thank you very much.
We’ve got both these narratives
developing at the same time, perhaps
then other tech and capital markets
activity, but still the structural
issues around the way that Europe values
and the way that London values stocks
right now and therefore the pull across
the Atlantic.
And this is the exact conversation we
had with the Barclays CEO yesterday and
that he’s actually dealing with an
exodus of bankers, by the way, leaving
Barclays.
You’re seeing this on the likes of other
European banks as well, in addition to
really compress advisory fees.
So you have UBS, you have Barclays
working on these massive deals, but
getting charging significantly less than
their American counterparts for it.
The Anglo story is also a multiple
story.
And as much as you look at the multiples
that miners trade on Australia versus
London, they’re better in Australia.
And this has been the argument as London
has tried to craft all these policies to
try and attract IPOs.
You know, they haven’t necessarily work,
but they’ve been going up.
They’ve been keep saying we want to
attract more tech IPOs, the likes of
Darktrace, for example, they say stuff
like that.
And then the the commodities industry
pops up and says, you know, think about
more how you keep hold of the businesses
that you do have rather than trying to
trap the new ones.
Maybe this room for bias.
We will talk about us next.
The out with numbers.
Last night I caught up with Guillaume
Faury, the CFO, the CEO.
I’m just uncreative.
I can’t believe I’ve done that.
And we’re going to talk more about what
he had to say to me.
They’ve they are selling aeroplanes,
they’re turning away customers, but the
supply chain is the constraint.
We’ll talk about that next.
This is Bloomberg.
We look at regime in a complex and
difficult supply chain environment and
we want to make sure that we have the
resources that we have the
I mean, the hardware, the equipment and
everything we need to keep ramping up in
a year that will that will be backloaded
to be like what it was last year.
Feel free.
The CEO of Airbus speaking to me last
night about the numbers that dropped
just after the European close last
night.
The numbers were disappointing, but you
need to get to the details.
There’s a bit of nuance here.
Airbus is effectively turning away
customers the moment it has so much
demand that it’s ramping up its
production.
Ramping up production means more
inventory, which is hurting the cash
flow story.
Its costs are higher.
It’s still struggling with the supply
chain issue that is a hangover from the
pandemic and persists.
Other businesses, other industries have
largely solved their post-pandemic
supply chain problems.
Aerospace has not, and this is an
ongoing problem.
At the same time, you’ve got Boeing
obviously struggling.
Therefore, you’re seeing even extra
demand coming in for Airbus.
So it’s kind of good news, bad news
story and the kind of market reflected
that last night, but a disappointment
for investors.
Bloomberg’s Ben Campbell joins us now,
leads our aerospace coverage.
We see both Boeing and Airbus reporting
this week very different problems.
Let’s talk a little bit about sort of
Airbus, Boeing.
Compare and contrast what stands out
between these two businesses right now.
One is really struggling.
But ironically, so’s the other.
Yes, you’re right.
In some ways, they’re struggling for
different reasons.
Though there was one light line that
stuck out for me from from the bar CEO
for me.
And he said it was to some degree, we’re
sort of victims of our own success.
And by that, he means the demand is so
hot right now that we can’t really keep
up.
And, you know, you saw some of that
trickle through to the numbers.
They have to build up inventory.
They have to prepare for the higher
build rate that was announced yesterday
on the A350 wide body.
They’re going to 12 a month in 2028.
All those things cost money and that’s
money that’s rushing out of the earnings
in the first quarter.
So, as you say, first quarter a little
bit messy.
They missed on the earnings, they missed
on the sales stocks down a bit.
But, you know, if you look at the
shares, they’ve had a pretty good run
this year.
And then if you look across at Boeing
who reported on Wednesday, much greater
problems there, huge cash drain, really
big losses at the commercial business.
And then just the sort of the icing on
the cake for them was for Moody’s to
come out later in the day and say, we’re
now cutting a rating by one level, just
hovering above junk at this problem at
this point.
So the problem’s far more pronounced at
Boeing than they are at Airbus at this
stage.
Well, as you point out.
But Airbus also has a couple of pain
points.
Can you walk us through some of those?
Well, the guy said supply chain is still
one of the big issues for he spoke about
at length yesterday in the interview, in
the TV interview.
And he said, look, we’ve we’ve not been
able to get the people back who left us
during the pandemic.
This is a highly specialized industry.
This is a company that is really ramping
up.
They’re building a lot more A320s than
they were a couple of years ago.
As I said, they’re going to 12 on the
A350.
During the pandemic, they barely
produced a handful of them a month.
So they’ve sort of tripled output of a
very complex product.
And all of these things are a strain.
He did say yesterday that we are keeping
a very close eye on our suppliers and
where there are issues, we come in and
we help.
We help with resources, we help with
teams and where we have to.
We might even help with money.
He didn’t lay out any examples, but this
is sort of it shows that the issues go
not just to our boss, but really to the
supply chain, which remains very
strange.
Talk to me, Betty, about the spirit
aerosystems business, because Boeing is
clearly trying to buy this business at
the moment that parts of it supply
Airbus and Airbus might want to hold
onto those.
There’s a lot to think about in this
complex relationship between these
three.
That’s right.
So we heard from the Boeing CEO, Dave
Calhoun, on Wednesday, and he sounded
very optimistic about into reintegrating
that business.
So Boeing used to own spirit.
Now they want to buy it back because of
the issues at that supplier.
They want to gain control again.
And they said we can get this done in
the second quarter.
And interestingly, yesterday, Guillaume
Faury said, well, actually not so fast.
You know, the body language from him was
more like we’re at the beginning of this
process.
He did say, we don’t want to hold anyone
hostage here, but they do have the cards
in their hand.
If they play hardball, they can make
life difficult for Boeing.
The assets that Spirit has that they
were interested in.
You know, some of them are problematic.
So they have some interest in dragging
this out a little bit, shall we say, and
not to sort of play nice with Boeing.
So whether Boeing can get this over the
line in the second half of the second
quarter, we don’t know.
Very different sort of language coming
out of the two companies yesterday.
So one to watch.
Many thanks so much member expanded
account joining us there on the aviation
sector.
Of course one big geopolitical focus for
us today is US Secretary of State Antony
Blinken, who’s in China.
He’s going to be meeting with the
Chinese president, Xi Jinping at Xi
Jinping in Beijing.
That was just confirmed within the last
couple of hours.
It comes as China’s top diplomat, Wang
Yi, warned Blinken that problems are
mounting between the two countries, even
as relations do stabilize.
He delivered that message as the two met
in the Chinese capital.
Pretty much
the Chinese relationship is beginning to
stabilize.
Across the areas, our two sides have
increased dialogue, cooperation and the
positive side of the relationship.
This is welcomed by our two peoples and
the international community.
But at the same time, the negative
factors in the relationship is still
increasing and building,
and the relationship is facing all kinds
of disruptions.
All kinds of disruptions.
Then this relationship faces Bloomberg.
Zayn Malik joins us.
He’s there.
He’s covering Penguins trip.
He’s on the ground with the US Secretary
of State, is on the phone as part of
that part of that trip.
Ian, what more do we know about
Blinken’s meeting with Xi Jinping?
That’s part of the positive side of
this, this delegation.
I suppose the fact that conversations
are happening and they’re happening with
a very at a very high level.
Yeah, exactly.
This meeting was only just confirmed.
Yeah, about an hour ago.
This is kind of the capstone to his trip
here.
The first part of the trip was a little
bit more public, facing a little bit
more, uh, you know, trying to show a
human side, going to basketball games
and things like that.
Now, today in Beijing, he sat down to
some very tense meetings with the
Chinese foreign minister, who, you know,
as you as you played there, you know,
warned him that the negative factors in
this relationship are increasing.
So there’s a lot of tensions here.
They came with a message to get China to
cut it out when it came to supplying,
you know, aid to Russia that was helping
Russia with its war in Ukraine.
And that was a message that was never
going to be particularly well received.
But it was only one of many things that
the U.S.
side wanted to bring up from Taiwan,
North Korea, human rights and other
things.
So today, I think, you know, with this
meeting confirmed, Blinken is going to
go into this meeting with Xi and and
bring a message from Biden, you know,
that this is when it comes to aiding
Russia, you know, aiding Russia’s
military industrial complex, which the
U.S.
and the West have tried to grapple with
sanctions.
They’re just the updated cited, very
concerned that the tide is turning
there, in part because Chinese economic
support to Russia with dual use
technology is and component helping them
rebuild their military industrial base
that that is potentially turning the
tide in the war.
So that’s a message that would be very
clear today is probably going to be
delivered by Blinken to see himself
shortly.
How much of the Chinese recognizing that
we’re in an election year and to what
extent does that color the comments that
are being made by the foreign minister?
Yeah, I think the Chinese are obviously
close observers of the U.S.
political system.
They know that, you know, the
administration is under pressure to talk
tough, but so acting tough when it comes
to threatening new sanctions on steel
and aluminum, vowing a probe into
Chinese shipbuilding and other things.
So I think they realize there’s you
know, there’s there’s heat.
They’re on the U.S.
side, But the Chinese side also faces a
bunch of domestic challenges from the,
you know, economic slowdown to, you
know, being warned by Europe in the U.S.
on exporting industrial overcapacity.
So they they don’t have so much wiggle
room to retaliate.
But there’s a host of issues where they
could retaliate.
There’s also this, you know, the tick
tock ban that, you know, that was just
passed in the States.
So there’s a lot of stuff ricocheting
around and a lot of them, you know,
certainly something we’re going to be
keeping a very close eye on.
Bloomberg’s Ian Marlow in Beijing
covering Anthony Blinken’s trip there.
As we start to see some of the rhetoric
between the two nations really ramp up,
that does it for markets today.
The pulse is up next.
Stick with us.
This is Bloomberg.

The Yen hits a fresh 34-year low reaching 156 after the Bank of Japan holds rates steady and tweaks its language on bond buying. Soft landing hopes dampen as the US economy slows and price pressures move higher. Traders pair rate cut bets as the focus shift to PCE data due out today. Stocks in Asia follow Wall Street higher after results from Microsoft and Alphabet. With analysis you won’t find anywhere else, we break down the biggest stories of the day and speak to top guests who have skin in the game. Hosted by Anna Edwards, Kriti Gupta and Guy Johnson.
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